Browsing articles in "Weekly Market Update"

Will Italy Get the Boot?

Nov 14, 2011   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

Volatility remained high this week due to further developments in Greece and Italy.  If this is beginning to sound like a broken record, that is because it is a broken record.  According to Michael Cembalest (Chief Investment Officer at JP Morgan), “I can’t remember a time when stock price movements were quite so heavily affected by macroeconomic developments.  One of our models indicates that 75%-80% of stock price movements for the S&P100 are now explained by macro forces, a new all-time high.”  That pretty much sums up this week and, for that matter, much of this year.

Despite the 400+ point intra-day move on Wednesday and the multiple 100+ point days this week, the market actually finished higher on news out of Greece and Italy.  Greek Prime Minister Papandreou officially stepped down with his ouster, Lucas Papademos, taking office today.  Mr. Papademos has an impressive resume starting with a Ph.D in Economics from MIT and positions at the Federal Reserve Bank of Boston and Vice President of the European Central Bank (ECB).  In addition, we learned that Italian Prime Minister Berlusconi will resign sooner rather than had been previously thought.  Austerity measures are quickly making their way through the Italian parliament and Mr. Berlusconi has pledged to step down as soon as these measures are passed (perhaps even this weekend).

However, even with the events that transpired this week, all is not rosy in Europe.  Rumors of a smaller breakaway group began to emerge.  It was leaked that France is drawing up plans to create a breakaway organization of eurozone countries with its own treaty, parliament and headquarters – a move that could significantly undermine the existing European Union.  In addition, the European Financial Stability Facility (EFSF) has not made much headway in raising the $1 trillion euros it agreed to raise several weeks ago.  There had been hopes that China, with $3.2 trillion in foreign reserves, would act beneficently toward its second largest market.  Yet China made it clear to the traveling delegation that they have no intention of “investing” in Europe given the instability in the region.

And lest we forget, our very own super committee has less than two weeks to come up with a debt reduction diet that cuts enough fat out of our budget without starving the slowly recovering economy.  If they don’t come up with a plan, or perhaps more realistically can’t agree to a plan, the measures that had been previously enacted will automatically take effect.  Those measures total some $1.2 trillion in cuts over the next decade and come primarily from defense and entitlement spending.  The clincher is that these cuts don’t go into effect until 2013, which gives politicians on both sides of the aisle little reason to act now.

In closing, we’d like to invite everyone in the Cincinnati area to join us for this year’s Olde West Chester Christmas Walk.  The parade and tree lighting will take place on Saturday, November 19th (we know, don’t get us started on having this take place before Thanksgiving).  Please mark your calendars as we look forward and hope to see each of you there.

On this Veteran’s Day, we’d like to thank all the veterans for their service to our country.  May their many sacrifices be remembered.

November 11, 2011: Market Update

Greece… Enough Said

Nov 10, 2011   //   by Marc Henn   //   Weekly Market Update  //  No Comments

One of the major stories of this week was definitely the on again, off again referendum vote that Greek Prime Minister Papandreou proposed earlier this week.  This very surprising announcement came only days after it appeared there was a deal struck on future austerity measures with other European leaders.  If a referendum vote were to take place it would be handing the future of Greece’s Eurozone participation into the arms of the country’s citizens.  This prompted one publication to write my favorite headline of the week:  “Greece rediscovers democracy, markets sent into chaos”.  Currently it appears this referendum vote is off the table which should allow a more Euro-favored outcome.  We will see what additional European surprises are in store for the weekend with a no-confidence-vote in Greece set to take place.  Like everything with Greece these days, the outcome of the vote appears to be uncertain.

The Federal Reserve Open Market Committee (FOMC) also met this week and is holding firm on any further action.  They did mention that they may consider buying more mortgage debt to help spur growth.  They also reduced the U.S. growth forecast for this year.  They are currently projecting growth for 2011 to be in the 1.6% – 1.7% range.  Not a recession but also not the robust growth that would lead to tremendous job growth either – and the jobs report showed that this week.

It was reported today that non-farm payrolls increased by only 80,000 in October.  However, some additional news that was positive was that the jobs growth in September was revised upwards to 158,000 and the August numbers, which were flat, were revised upwards to 104,000.  While not the 200,000+ jobs per month we would like to see, it is definitely welcome news.

Earnings season has been winding down and we did see positive earnings figures from a handful of companies.  Included within those companies that beat their earnings expectations were Emerson Electric and Qualcomm.

I have no story of the week; however I do leave you with a quote from humorist Will Rogers.  I find it appropriate with all of the back and forth we are seeing in politics.  His quote – “I don’t make jokes.  I just watch the government and report the facts”.

November 4, 2011: Market Update

Something is a Little Fishy!

Oct 28, 2011   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

It seemed just last week we were bidding farewell and good riddance to September.  After a difficult third quarter it is with sincere feeling of thankfulness that we bid October adieu.  This past month represents the largest monthly point gain EVER for both the Dow Jones Industrial Average and the S&P 500 Index (short of some calamity on Monday).  For those who question the wisdom of being patient in a volatile and event driven market we understand your anxiety.  However, it is months like October that remind us that patience can be a virtue and fear sometimes a vice.

There was a lot to be grateful for this week, but perhaps the most important was a framework resolution for the bailout of Greece.  While the devil is in the details, the responsible parties seem to have agreed on a basic premise for this and future bailouts.  While it’s likely that the problem isn’t yet solved, the can has been kicked into 2012 and beyond.  To a large extent, this is what drove the markets higher this week.

However, the next hurdle facing the markets is quickly approaching.  You’ll remember that before the situation in Greece heated up this summer, there was that little situation over our burgeoning debt problem.  A “super committee” was created to look at ways to reduce our debt-to-GDP ratio with a deadline of November 23rd.  The committee has been unusually quiet these past few months and if history is any guide we won’t hear anything until November 22nd.  What’s at stake is another potential credit downgrade by Moody’s or S&P with a prolonged battle into the presidential election season next year.

The good news is that the economic indicators are slowly beginning to suggest that we’re not in or heading into a double-dip recession.  Just today, the first estimate of Q3 Gross Domestic Product (GDP) was released as +2.5% (annualized).  This is above the +1.3% increase in Q2 GDP and a reversal of weakening numbers in recent quarters.  However, one number does not make a trend.  Understandably consumer confidence remains low with the October reading coming in at an anemic 39.8, well below the 46 expected.  And while companies continue to report good revenue and earnings growth, more than a few are warning that Q4 will come in below prior guidance.  To be certain, there are obstacles ahead.  Yet, we’ve once again come through a difficult period of cyclicality and are for the moment on the mend.

There were a few stories I was considering for the story of the week.  I settled on this one because it is the second time I’ve come across it.  For a long time now, health conscious foodies have opted for fish.  Over time, we’ve seen a quick rise in the variety of fish and the increasingly upscale options available.  Yet would you know one species from another once cooked and sitting on your plate?  Apparently many wouldn’t in light of a recent study.  Consumer Reports found that a surprising number of fish are not what we think they are.  Another study showed that nearly half the 183 fish samples reporters purchased at restaurants, grocery stores, and seafood markets were sold with the wrong species name.  The downside is that not only are you not getting what you think you ordered, but that you probably paid too much and it may be less healthy than you think, i.e. mercury.  Among those often mislabeled include red snapper, white tuna, grouper and Pacific cod.  Just some food for thought!

October 28, 2011: Market Update

Most Overpaid CEOs

Oct 21, 2011   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

If you had been following the markets this week you would have noticed that they continued the recent trend higher.  For the most part, this was due to reasonably good earnings announcements.  Companies reporting earnings were pretty optimistic about future prospects and most met analysts’ expectations.  On the other hand, the curtain just went up on Act Three of the Shakespeare drama playing out in Europe.  Are we closer to a resolution over Greek debt?  We’ll know after this weekend.

Given the recent pessimism over the state of the economy these past few months, it shouldn’t come as a surprise that many analysts had lowered their expectations.  Everything from GDP estimates to growth estimates was slashed.  So when companies started announcing third quarter earnings this week, it was with bated breath that we waited.  Fortunately, with few exceptions, many companies beat consensus expectations.  But more notably, many cyclically important companies remain bullish on the fourth quarter.  This is partly due to the recent pullback in the price of oil and other commodities.  It’s also due to the observation that price increases are being tolerated by consumers better than had been hoped.  We’re not out of the woods yet, but what we’re hearing so far suggests that perhaps the pendulum is swinging in the right direction once again.

Then we have Europe.  One commentator on CNBC said he wished politicians in Europe would “shut up” until an agreement is reached.  I concur.  The back and forth of news releases is dizzying and isn’t serving any purpose other than to confuse and exasperate investors.  For a quick timeline of this week we had the following:

  • Monday – Germany and France agree to meet this Sunday to discuss increasing the bailout fund (EFSF) to €2 trillion.
  • Tuesday – it is leaked that legal experts say it would break the law for the EFSF to buy sovereign debt directly.
  • Wednesday – news comes out that the Sunday meeting may be postponed to next Wednesday despite the critical deadline.
  • Thursday – it is suggested that maybe instead of the EFSF buying the bad debt, foreign countries could borrow money from the EFSF and use it as collateral against their bad debt to raise additional funds in the private market.
  • Friday – new rumors emerge that now the IMF could step in and provide loans to faltering countries, circumventing the EFSF.  Oh, and in closing it is announced that Greece is in far worse shape than had previously been thought.  In fact, if 50% of the Greek debt is written off, it would still take until 2020 for Greece’s debt to fall to 120% of GDP.

We can only wonder how this third act ends.

Lastly, the story of the week comes straight from 24/7 Wallstreet.  Each year they look at the compensation of CEOs at the 100 public companies that paid their chief executives the most.  Here is their list of America’s most overpaid CEOs.  You’ll be happy to know that we do not own any of these companies.

Name Company Total Compensation Change in Stock Price
Kevin Sharer Amgen, Inc. $21,138,133 -3.0%
William Weldon Johnson & Johnson $28,720,491 -4.0%
Robert Stevens Lockheed Martin Corp. $21,897,820 -7.2%
William Swanson Raytheon Co. $18,787,343 -10.1%
Miles White Abbott Labs $25,564,283 -11.3%
Laurence Fink BlackRock Inc. $23,839,294 -17.9%
Tom Ward SandRidge Energy $21,756,257 -22.4%
John Chambers Cisco Systems $18,871,875 -31.4%

 

For a more detailed explanation why they think these CEO are overpaid click here.

October 21, 2011: Market Update

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